Guest post by Steve Coyle, Operations Director of Cullen Property
Now is a good time for the Scottish property market with Edinburgh property investment on the rise. According to recent reports, Scotland is in prime position to benefit from London’s overheating property market with Edinburgh listed among the top three European cities in which to invest, according to property experts.
Investors looking for value for money and bang for their buck are now thinking outside the London bubble and looking to Edinburgh. The tide is beginning to turn for a number of reasons.
Firstly, London rental returns are quite low so it only works if there is strong capital growth. Now that capital growth is stalling, it isn’t attractive to investors. Edinburgh, on the other hand, offers high rental returns at affordable property prices.
Traditional Edinburgh property has always had a microclimate for property investment which meant it was less affected by the downturn in the property market, compared to many other areas. At the same time, the universities continued to grow and attract students of a high calibre and from financially secure families who know exactly where they wanted to live – areas like Marchmont, Newington and Tollcross being among the favourites. Many of these students are willing to pay an above average rent for these high-quality properties.As a result, residential property lettings were not hit as hard by the recession.
Compared to London, Edinburgh property prices remain relatively low, making the city far more accessible to potential investors. Whilst always an advantage, this made the city especially attractive when mortgage finance became scarce. Over the last six months or so, (buy-to-let) mortgage finance has become more readily available again. At the same time, overall confidence in the economy has grown, setting the scene for a more positive outlook within the property market as a whole. The General Election result has installed an investor friendly government and this is the additional political factor that needed to drop into place after Scotland voted ‘no’ to independence. There are still some ongoing issues about tenancy law but the various stakeholders appear to be working together to amend the law which will hopefully suit all parties.
Whilst the economy is steady again, stock markets are still fluctuating too much for cautious investors whereas traditional bricks and mortar is always viewed as a safe bet. There has been heightened interest from private investors looking for ‘character properties’ such as traditional Victorian built tenement flats, which Edinburgh is famed for and Cullen Property specialises in sourcing. These potential investors are looking for solidly quantifiable net returns on their investment and these properties, if chosen correctly, can yield 7 per cent or more in net rental returns, plus any additional capital growth. This is significantly more than a number of other investments and asset classes can offer.
Some of the demand is coming from over-55s using new pension freedoms to invest their savings in rental property. Interestingly, Cullen Property saw increased interest in Edinburgh property from more mature investors at this year’s Property Investor & Homebuyer Show, held in London, where we met over 400 property investors over the two-day event. Many people we spoke to already had links to Edinburgh, having either studied here themselves or because their children are studying here, and our discussions often focused on their expectations of the Edinburgh property market, particularly compared with London where many investors are now priced out of the market entirely. More experienced property investors are interested in securing not just a buy-to-let flat but a long-term home for their children, and even grandchildren. With affordable prices and such a high quality of life, Edinburgh property is an obvious choice.
Investors are also benefitting from Edinburgh’s growing employment, stable economy and companies moving to open up offices in the Capital. Meanwhile, London has become the most expensive city for companies looking to relocate staff and businesses are being priced out of the city and looking elsewhere. Edinburgh is primed to capitalise and already has the second fastest growing employment centre in the UK. According to Edinburgh Evening News, the first few months of 2015 saw an impressive 1637 new businesses set up in the Capital and 32 different foreign investment projects also moved to Edinburgh, creating 447 new jobs.
Edinburgh is well connected which is appealing to investors and has one of the UK’s busiest airports, with more than 40 airlines serving 
more than 100 destinations. Edinburgh Airport is better linked than ever with new flight routes unveiled daily, such as the launch of new flights between Edinburgh and New York and Jet2 recently announcing 12 new routes. We can’t talk about Edinburgh without mentioning festivals which attract over a quarter of a billion pounds worth of additional tourism revenue for Scotland each year. Edinburgh’s world renowned New Year celebrations and 12 major annual festivals play a starring role in the profile of the city and its tourism economy. Edinburgh’s booming tourist trade is always attractive to investors as ‘festival rents’ are a great opportunity to secure premium rents.
Edinburgh residential property will continue to grow in popularity with investors as long as finance is available and prices remain relatively stable with relative growth when the rest of the UK housing market moves forward. The general outlook is for prime and traditional Edinburgh properties to mirror what we have seen happening so far in London this year, albeit with a two-year lag. So we’re expecting to see capital growth of circa 2.5% - 4.5%by 2016 in Edinburgh. The rents have been relatively recession-resistant in the last few years and we expect them to continue to grow at levels of circa 2.0 per cent to 3.0 per cent per annum.
Edinburgh itself is clearly seen as a safe place to invest.If you want value for money, interesting properties with period features, recession resistant rents in a mid-sized European city, then Edinburgh is the city for you.
Steve Coyle , Operations Director, Cullen Property
The Property Voice Insight
Property Investors in the UK should consider Scotland overall and Edinburgh in particular, as Steve Coyle rightly highlights in his feature.
I invest in Edinburgh myself already and will do so again in the future under the right circumstances. A quick run-through of my 'STAR criteria' will explain immediately why:
S - Schools (including Universities)...whilst results will vary across a city such as Edinburgh, there are plenty of 'good schools' in he city to choose from. As for the university; as one of the oldest and most heralded in the country what more is there to say about this. A student city always makes for decent rental returns overall and so targeting students is an obvious, if an unimaginative way of investing in the city.
T - Transport...Edinburgh has excellent inter-urban and intra-urban transport links. A major airport, the East-Coast Mainline train connecting with London and a strong motorway network are a testimony to that. Within the city, as with many others, road links can get a little bottlenecked at peak hours, however there is an extensive bus network and of course the tram...despite the debate and controversies in recent times - all adding to a well-connected transport system.
A - Amenities (shops, bars, restaurants, etc.)...what can't you find in the city? Steve quite rightly mentions the festivals and the resulting vibe and tourist intake that this creates. In addition to the student rental market, there is also a short-term letting market to cater for business and leisure visitors to consider.
R - Revenue (jobs & investment)...with an excellent employment rate and strong financial services and public sectors, the city provides for a strong professional workforce...and tenant base for standard buy-to-let properties. Investment in the city is strong, including the aforementioned tram extension project.
So, at a glance, the 'STAR criteria' come out very well. However, as with all potential rental locations, areas within a large city do vary and so a more granular analysis is needed when considering individual investments.
Many in the rest of the UK may not be that familiar with the differences in rental and housing markets that exist in Scotland. For example, the 'offers over' selling price guides and that an accepted offer is legally binding, contrary to what happened under English Law. The latter is actually a very positive characteristic that brings certainty to the market. In addition, there are some differences in tenancy law and how landlords are controlled - Edinburgh has a mandatory licencing scheme for example. However, don't let that put you off...I can tell you from experience that it is basically a form-filling exercise to become registered, which should be fine as long as you are not a criminal. It does also demand that you adhere to certain standards, although just how these are enforced is not entirely visible to me at least.
Probably, the biggest single reason why Edinburgh now, is that in the lead up to the Independence vote and General Election, people may have been holding back a little in terms of investing decisions. Now, with arguably more landlord / investor friendly outcomes in both cases, is a good time to look at the longer-term characteristics of Edinburgh as n investment destination that has several micro-investment opportunities to consider?
Of course, we cannot highlight Edinburgh without also at least having an eye on some other Scottish investment cities, notably Glasgow and Aberdeen obviously. Both of these cities have their attractions too. Whilst Aberdeen has regularly featured as a top-performer in previous property investment league tables, it is rather dependent on a single industry...oil. That is often a dangerous thing with a heavy focus on one industry and whilst the oil may not run out tomorrow, it will do one day. Glasgow should also be strongly considered as it has so much of what Edinburgh has to offer as well - transport links, university, business and a cultural scene that has grown in stature too. For me, whilst I would look seriously at several cities in Scotland as potential investment location, I still do like Edinburgh for all it's history and Capital city status that are sure to ensure it will remain a big draw for some time yet.
I might have thrown down the gauntlet for other Scottish cities to take up with these comments...I am sure a balanced debate would be appreciated by all concerned...so bring it on!
[…] Guest post by Steve Coyle, Operations Director of Cullen Property Now is a good time for the Scottish property market with Edinburgh property investment on the rise. According to recent reports, Scotland is in prime position to benefit from London’s overheating property market with Edinburgh listed among the top three European cities in which to invest, according to property experts. Investors looking for value for money and bang for their buck are now thinking outside the London bu… […]